Question 1

Historical costs are helpful:

Accepted Answer

A) for making future predictions. 
B) because they are quantitative. 
C) for decision making. 
D) None of these answers are correct. 
A) for making future predictions. 
B) because they are quantitative. 
C) for decision making. 
D) None of these answers are correct.

Question 2

When making short-term decisions,it is important that decision makers are aware that the TOC approach tends to lend itself more to short-term decisions while ABC often has long-term implications.

Accepted Answer

A) True 
 B)False

Question 3

The assumption of no short-run or strategic implications is crucial to management's analysis of the one-time-only special order decision.

Accepted Answer

A) True 
 B)False

Question 4

Wombat Wholesalers Company has prepared the following income statement showing sales for the current year:
$$\begin{array} { l r r r r } 
\text { Company } & \text { A } & \text { B } & \text { C } & \text { Total } \
\text { Sales } & \$ & \$ & \$ & \$ \
\text { Cost of sales } & 50000 & 20000 & 30000 & 100000 \
\text { Contribution margin } & 30000 & 10000 & 20000 & 60000 \
\text { Marketing support } & 20000 & 10000 & 10000 & 40000 \
\text { Sales and delivery processing costs } & 2000 & 500 & 1500 & 4000 \
\text { Fixed costs allocated: } & 1500 & 500 & 3000 & 5000 \
\text { Rent } & & & & \
\text { Depreciation } & 2500 & 1000 & 1500 & 5000 \
\text { Administrative expenses } & 3000 & 1200 & 1800 & 6000 \
\text { Operating profit } & 4500 & 2600 & 5900 & 13000 \
 & 6500 & 4200 & ( 3700 ) & 7000
\end{array}$$
The following additional information is available:
* The rent of $1500 assigned to Company C is not avoidable if the company is dropped.
* The company's total depreciation would not be affected by dropping Company C.
* Elimination of Company C will make it possible to cut two people from the administrative staff;their combined salaries total $3000.
If Company C was dropped,Wombat would have reported:

Accepted Answer

A) greater corporate profits. 
B) the same amount of corporate profits. 
C) lower corporate profits. 
D) resulting profits cannot be determined. 
A) greater corporate profits. 
B) the same amount of corporate profits. 
C) lower corporate profits. 
D) resulting profits cannot be determined.

Question 5

From the perspective of their own careers,it is no surprise that managers tend to favour the replacement decision option that makes their ________ look better.

Accepted Answer

A) future 
B) status 
C) opportunity 
D) performance 
A) future 
B) status 
C) opportunity 
D) performance

Question 6

Managers must watch for incorrect general assumptions in relevant-cost-analysis.

Accepted Answer

A) True 
 B)False

Question 7

Qualitative factors:

Accepted Answer

A) include customer satisfaction. 
B) may include either financial or non-financial information. 
C) generally are easily measured in quantitative terms. 
D) are generally irrelevant for decision making. 
A) include customer satisfaction. 
B) may include either financial or non-financial information. 
C) generally are easily measured in quantitative terms. 
D) are generally irrelevant for decision making.

Question 8

If management takes a multiple-year view in the decision model and judges success according to the current year's results,a problem will occur in the:

Accepted Answer

A) quantitative model. 
B) decision model. 
C) production evaluation model. 
D) performance evaluation model. 
A) quantitative model. 
B) decision model. 
C) production evaluation model. 
D) performance evaluation model.

Question 9

Full costs of a product are relevant for one-time-only special order pricing decisions.

Accepted Answer

A) True 
 B)False

Question 10

Revenues and costs that are not relevant are said to be:

Accepted Answer

A) sunk. 
B) qualitative. 
C) quantitative. 
D) irrelevant. 
A) sunk. 
B) qualitative. 
C) quantitative. 
D) irrelevant.

Question 11

TOC tends to be more in line with an absorption costing approach to decision making,which may result in a wrong decision being made for the company's long-term profitability.

Accepted Answer

A) True 
 B)False

Question 12

Answer the following questions using the information below:
Darwin's Rockers manufactures two models,Deluxe and Super Deluxe.Weekly demand is estimated to be 100 units of the Deluxe Model and 70 units of the Super Deluxe Model.The following per unit data apply:
 $$\begin{array} { l c c } 
& \text { Deluxe } & \text { Sumer Deluxe } \
\text { Contribution margin per unit } & \$ 18 & \$ 20 \
\text { Number of machine-hours required } & 3 & 4
\end{array}$$
-If there are 600 machine-hours available per week,how many rockers of each model should Jim Darwin produce to maximise profits?

Accepted Answer

A) 100 units of Deluxe and 49 units of Super Deluxe 
B) 85 units of Deluxe and 60 units of Super Deluxe 
C) 100 units of Deluxe and 70 units of Super Deluxe 
D) 72 units of Deluxe and 70 units of Super Deluxe 
A) 100 units of Deluxe and 49 units of Super Deluxe 
B) 85 units of Deluxe and 60 units of Super Deluxe 
C) 100 units of Deluxe and 70 units of Super Deluxe 
D) 72 units of Deluxe and 70 units of Super Deluxe

Question 13

Answer the following questions using the information below:
Stephans Corporation currently manufactures a subassembly for its main product.The costs per unit are as follows:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 1.00 \
\text { Direct labour } & 10.00 \
\text { Variable overhead } & 5.00 \
\text { Fixed overhead } & \underline { 8.00 } \
\quad \text { Total } &  \underline{\$ 24.00} \

\end{array}$$ Bill Company has contacted Stephans with an offer to sell them 5000 of the subassemblies for $22.00 each.Stephans will eliminate $25 000 of fixed overhead if it accepts the proposal.
-What are the relevant costs for Stephans?

Accepted Answer

A) $125 000 
B) $140 000 
C) $105 000 
D) $80 000 
A) $125 000 
B) $140 000 
C) $105 000 
D) $80 000

Question 14

Which of the following concepts applies to all decision situations?

Accepted Answer

A) sunk costs 
B) opportunity cost 
C) relevance 
D) outsourcing 
A) sunk costs 
B) opportunity cost 
C) relevance 
D) outsourcing

Question 15

When are costs relevant to a particular decision?

Accepted Answer

A) If they are fixed costs 
B) If they differ across the alternatives being considered 
C) If they are variable costs 
D) If they remain unchanged across the alternatives being considered 
A) If they are fixed costs 
B) If they differ across the alternatives being considered 
C) If they are variable costs 
D) If they remain unchanged across the alternatives being considered

Question 16

Answer the following questions using the information below:
Flowers For Everyone is considering replacing its existing delivery van with a new one.The new van can offer considerable savings in operating costs.Information about the existing van and the new van follow:
 $$\begin{array} { l r r } 
& \text { Existing van } & \text { New van } \
\text { Original cost } & \$ 100000 & \$ 180000 \
\text { Antual operating cost } & \$ 33000 & \$ 20000 \
\text { Accumulated depreciation } & \$ 60000 & - \
\text { Current salvage value of the existing van } & \$ 45000 & - \
\text { Remaining life } & 10 \text { years } & 10 \text { years } \
\text { Salvage value in 10 years } & \$ 0 & \$ 0 \
\text { Antual depreciation } & \$ 4000 & \$ 18000
\end{array}$$
-If Flowers For Everyone replaces the existing delivery van with the new one,over the next 10 years operating profit will:

Accepted Answer

A) decrease by $180 000. 
B) increase by $130 000. 
C) decrease by $130 000. 
D) None of these answers are correct. 
A) decrease by $180 000. 
B) increase by $130 000. 
C) decrease by $130 000. 
D) None of these answers are correct.

Question 17

Answer the following questions using the information below:
George's 5-year-old Geo Prizm requires repairs estimated at $3000 to make it roadworthy again.His friend,Julie,suggested that he should instead buy a 5-year-old used Honda Civic for $3000 cash.Julie estimated the following costs for the two cars:
 $$\begin{array} { l r r } 
& \text { Geo Prizm } & \text { Honda Civic } \
\text { Acquisition cost } & \$ 15000 & \$ 3000 \
\text { Repairs } & \$ 3000 & - \
\text { Antual operating costs } & & \
\text { (Fuel, maintenance, insurance) } & \$ 2280 & \$ 2100
\end{array}$$
-What should George do? What are his savings in the first year?

Accepted Answer

A) Fix the Geo Prizm;$5518 
B) Fix the Geo Prizm;$5280 
C) Buy the Honda Civic;$180 
D) Buy the Honda Civic;$9780 
A) Fix the Geo Prizm;$5518 
B) Fix the Geo Prizm;$5280 
C) Buy the Honda Civic;$180 
D) Buy the Honda Civic;$9780

Question 18

'Opportunity cost' is the contribution to operating profit that is forgone by not using a limited resource in its next best optional use.

Accepted Answer

A) True 
 B)False

Question 19

In a decision as to whether or not to drop a product,fixed costs that have been allocated to that product are always relevant.

Accepted Answer

A) True 
 B)False

Question 20

Answer the following questions using the information below:
Frederick Company is considering replacing a machine.The following data are available:
 $\begin{array}{lrr}
&& \text { Replacement } \
&\text { Old Machine } & \text { Machine }\
\text { Original cost } & \$ 45000 & \$ 35000 \
\text { Useful life in years } & 10 & 5 \
\text { Current age in years } & 5 & 0 \
\text { Book value } & \$ 25000 & - \
\text { Disposal value now } & \$ 6000 & - \
\text { Disposal value in 5 years } & 0 & 0 \
\text { Annual cash operating costs } & \$ 6500 & \$ 4000
\end{array}$
-Which of the data provided in the table is a sunk cost?

Accepted Answer

A) The annual cash operating costs of the replacement machine 
B) The original cost of the old machine 
C) The annual cash operating costs of the old machine 
D) The disposal value of the old machine 
A) The annual cash operating costs of the replacement machine 
B) The original cost of the old machine 
C) The annual cash operating costs of the old machine 
D) The disposal value of the old machine

Historical costs are helpful:

When making short-term decisions,it is important that decision makers are aware that the TOC approach tends to lend itself more to short-term decisions while ABC often has long-term implications.

The assumption of no short-run or strategic implications is crucial to management's analysis of the one-time-only special order decision.

From the perspective of their own careers,it is no surprise that managers tend to favour the replacement decision option that makes their ________ look better.

Managers must watch for incorrect general assumptions in relevant-cost-analysis.

Qualitative factors:

If management takes a multiple-year view in the decision model and judges success according to the current year's results,a problem will occur in the:

Full costs of a product are relevant for one-time-only special order pricing decisions.

Revenues and costs that are not relevant are said to be:

TOC tends to be more in line with an absorption costing approach to decision making,which may result in a wrong decision being made for the company's long-term profitability.

Which of the following concepts applies to all decision situations?

When are costs relevant to a particular decision?

'Opportunity cost' is the contribution to operating profit that is forgone by not using a limited resource in its next best optional use.

In a decision as to whether or not to drop a product,fixed costs that have been allocated to that product are always relevant.

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters

Exam 10: Decision Making and Relevant Information

Historical costs are helpful:

When making short-term decisions,it is important that decision makers are aware that the TOC approach tends to lend itself more to short-term decisions while ABC often has long-term implications.

The assumption of no short-run or strategic implications is crucial to management's analysis of the one-time-only special order decision.

From the perspective of their own careers,it is no surprise that managers tend to favour the replacement decision option that makes their ________ look better.

Managers must watch for incorrect general assumptions in relevant-cost-analysis.

Qualitative factors:

If management takes a multiple-year view in the decision model and judges success according to the current year's results,a problem will occur in the:

Full costs of a product are relevant for one-time-only special order pricing decisions.

Revenues and costs that are not relevant are said to be:

TOC tends to be more in line with an absorption costing approach to decision making,which may result in a wrong decision being made for the company's long-term profitability.

Which of the following concepts applies to all decision situations?

When are costs relevant to a particular decision?

'Opportunity cost' is the contribution to operating profit that is forgone by not using a limited resource in its next best optional use.

In a decision as to whether or not to drop a product,fixed costs that have been allocated to that product are always relevant.

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters